Some argue that the US government is blowing the last bubble: the treasury bubble.
Will it be the last bubble?
When is it going to pop?
How long will the foreign countries continue to buy the U.S. bonds?
The U.S. may have to keep in mind that Japan’s long-term bonds are already yielding below 1%.(We know who has been mostly buying Japanese bonds: internal buying)
Yet, the day of reckoning may take a lot longer than most of us would think. Or perhaps not.
Thursday, September 30, 2010
Wednesday, September 29, 2010
Are Currency/Trade Wars Associated With a Sovereign Matter?
As I mentioned before, China dumped the U.S. bonds last December and have bought Japanese and Korean bonds ever since. This move has pushed the value of Japanese and Korean currencies higher, thereby forcing the prices of their exports higher.
China has also remained in contention with the U.S. over tariffs and currency matters.
A currency war across the globe has broken out.
China seems to consider the currency matter one of the sovereign matters and have an intention not to yield. China knows what has happened to Japan after the Plaza Accord. They learned their lessons.
Some geopolitical events unfolding may have to be viewed in this context.
China has also remained in contention with the U.S. over tariffs and currency matters.
A currency war across the globe has broken out.
China seems to consider the currency matter one of the sovereign matters and have an intention not to yield. China knows what has happened to Japan after the Plaza Accord. They learned their lessons.
Some geopolitical events unfolding may have to be viewed in this context.
Tuesday, September 28, 2010
Ross Perot Warned in 1992: Giant Sucking Sound
Ross Perot warned about the destruction of manufacturing jobs back in 1992, and the U.S. is now paying the price in a painful way.
YouTube video - 1992 Presidential Debate
http://www.youtube.com/watch?v=Rkgx1C_S6ls
YouTube video - 1992 Presidential Debate
http://www.youtube.com/watch?v=Rkgx1C_S6ls
Monday, September 27, 2010
Is Korea Following Japan’s Declining Path?
A Korean newspaper reports on Monday that Korea’s real debt to GDP ratio is over 130%.
As we know, Japan’s debt to GDP ratio is about 200%.
Japan has been experiencing the outcomes of real estate and stock market bubble hangover.
Japan has been propping up the banks. And yet, zombification of its banks is still ongoing.
Although they have undergone lost decades after the Plaza Accord and the bubble burst, they have been able to muddle through due to global boom and prosperity. That doesn’t seem to be the case going forward.
Are we seeing this repeat pattern?
Both Japan and Korea accomplished the rapid growth over a relatively short time. In the wake of the rapid growth, the economic inflation follows and could lead to the economic decline.
Perhaps one of the hardest questions Korea has to ask is: are we saddling our future generation with tough living conditions?
As we know, Japan’s debt to GDP ratio is about 200%.
Japan has been experiencing the outcomes of real estate and stock market bubble hangover.
Japan has been propping up the banks. And yet, zombification of its banks is still ongoing.
Although they have undergone lost decades after the Plaza Accord and the bubble burst, they have been able to muddle through due to global boom and prosperity. That doesn’t seem to be the case going forward.
Are we seeing this repeat pattern?
Both Japan and Korea accomplished the rapid growth over a relatively short time. In the wake of the rapid growth, the economic inflation follows and could lead to the economic decline.
Perhaps one of the hardest questions Korea has to ask is: are we saddling our future generation with tough living conditions?
Friday, September 24, 2010
Rethinking the Asian Innovation Engine
Although there are some significant differences, Japan, Korea and China share similar characteristics in their innovation framework.
Japan used to be a cheap product exporter, and then developed into a high-tech powerhouse.
Korea followed suit, becoming a high-tech machine in some areas.
China is following the similar innovation trajectory from being cheap product producer to becoming ODMs
Japan, Korea and China have been able to export to the U.S. with their currencies undervalued and the USD inflated. They have also been the U.S. bond holders.
It can be contended that MNCs have benefited most from this peculiar East and West relationship: the U.S. being the consumer market and mercantilist trading partners being net exporters and bond holders.
There are also geopolitical issues involved in this global production/innovation framework.
Further, the innovation engine across the Asian countries have been more hampered than helped by their big governments, big banks and big corporations over the long run.
They all have faced (is facing) asset bubbles, which have afflicted them.
Japan used to be a cheap product exporter, and then developed into a high-tech powerhouse.
Korea followed suit, becoming a high-tech machine in some areas.
China is following the similar innovation trajectory from being cheap product producer to becoming ODMs
Japan, Korea and China have been able to export to the U.S. with their currencies undervalued and the USD inflated. They have also been the U.S. bond holders.
It can be contended that MNCs have benefited most from this peculiar East and West relationship: the U.S. being the consumer market and mercantilist trading partners being net exporters and bond holders.
There are also geopolitical issues involved in this global production/innovation framework.
Further, the innovation engine across the Asian countries have been more hampered than helped by their big governments, big banks and big corporations over the long run.
They all have faced (is facing) asset bubbles, which have afflicted them.
Thursday, September 23, 2010
China Bans Shipment of Rare Earth Materials to Japan
China is buying up the Yen and now bans rare earth shipments to Japan.
Nationalism and protectionism would increase amidst the global economic slump.
From the NYT:
Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.
China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.
Japan has been the main buyer of Chinese rare earths for many years, using them for a wide range of industrial purposes, like making glass for solar panels. They are also used in small steering control motors in conventional gasoline-powered cars as well as in motors that help propel hybrid cars like the Toyota Prius.
American companies now rely mostly on Japan for magnets and other components using rare earth elements, as the United States’ manufacturing capacity in the industry became uncompetitive and mostly closed over the last two decades.
The Chinese halt to exports is likely to have immediate repercussions in Washington. The House Committee on Science and Technology is scheduled on Thursday morning to review a detailed bill to subsidize the revival of the American rare earths industry. The main American rare earths mine, in Mountain Pass, Calif., closed in 2002, but efforts are under way to reopen it.
http://www.nytimes.com/2010/09/23/business/global/23rare.html?_r=2&ref=business
Nationalism and protectionism would increase amidst the global economic slump.
From the NYT:
Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.
China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.
Japan has been the main buyer of Chinese rare earths for many years, using them for a wide range of industrial purposes, like making glass for solar panels. They are also used in small steering control motors in conventional gasoline-powered cars as well as in motors that help propel hybrid cars like the Toyota Prius.
American companies now rely mostly on Japan for magnets and other components using rare earth elements, as the United States’ manufacturing capacity in the industry became uncompetitive and mostly closed over the last two decades.
The Chinese halt to exports is likely to have immediate repercussions in Washington. The House Committee on Science and Technology is scheduled on Thursday morning to review a detailed bill to subsidize the revival of the American rare earths industry. The main American rare earths mine, in Mountain Pass, Calif., closed in 2002, but efforts are under way to reopen it.
http://www.nytimes.com/2010/09/23/business/global/23rare.html?_r=2&ref=business
Local Manufacturing May Come Back as the Forces of Globalization Wane
Korea had benefitted from globalization, but with a secular change occurring, it may be more hurting the Korean economy than helping it.
A nation should be as self-sufficient as possible for the benefit of the general public and industrial base is a big part of that.
The below article is about the U.S., yet have implications for the Asian countries as well.
One may have to look at these individual perspectives and events unfolding by connecting the dots in the larger context.
From Market Watch:
Consider the simplified version of how the main engine of global economic growth worked until 2008: U.S. and other Western consumers bought cheap goods made in China, which used the cash to buy U.S. government debt, thereby financing more and more U.S. borrowings and consumption of goods from Asia and elsewhere.
U.S. consumers in turn benefited from cheaper goods but that came at a cost: manufacturing jobs went to Asia. Meanwhile, all the debt-relying industries, namely housing, financial services, and consumer-discretionary goods, ballooned in the U.S. and in a number of other industrialized countries.
The engine has stopped. After the huge drop in U.S. demand following the financial crisis and the ongoing economic slump, it will take years for employment, consumers and the economy to recover.
But while all the debt-relying industries might have reached a top, U.S. manufacturing is finally emerging “after years of carving out a bottom,” says Rosenberg.
“It’s now often cheaper to produce at home than it is to produce abroad,” says Rosenberg.
http://www.marketwatch.com/story/welcome-to-the-new-wild-local-frontier-2010-09-21?link=kiosk
A nation should be as self-sufficient as possible for the benefit of the general public and industrial base is a big part of that.
The below article is about the U.S., yet have implications for the Asian countries as well.
One may have to look at these individual perspectives and events unfolding by connecting the dots in the larger context.
From Market Watch:
Consider the simplified version of how the main engine of global economic growth worked until 2008: U.S. and other Western consumers bought cheap goods made in China, which used the cash to buy U.S. government debt, thereby financing more and more U.S. borrowings and consumption of goods from Asia and elsewhere.
U.S. consumers in turn benefited from cheaper goods but that came at a cost: manufacturing jobs went to Asia. Meanwhile, all the debt-relying industries, namely housing, financial services, and consumer-discretionary goods, ballooned in the U.S. and in a number of other industrialized countries.
The engine has stopped. After the huge drop in U.S. demand following the financial crisis and the ongoing economic slump, it will take years for employment, consumers and the economy to recover.
But while all the debt-relying industries might have reached a top, U.S. manufacturing is finally emerging “after years of carving out a bottom,” says Rosenberg.
“It’s now often cheaper to produce at home than it is to produce abroad,” says Rosenberg.
http://www.marketwatch.com/story/welcome-to-the-new-wild-local-frontier-2010-09-21?link=kiosk
Wednesday, September 22, 2010
Bubble Boom and Burst and the Erosion of the Productive Capacity
We’ve been seeing the bubble boom and bust across the globe.
We know how the U.S. has blown its dotcom bubble and real estate bubble and how they are paying the price.
Japan has undergone two lost decades after their stock market/real estate burst.
China is also facing a property bubble pop with credit growing at 20+% YOY.
Korea is not immune from this issue.
The bubble boom and bust has destroyed the productive capacity of a nation to a considerable degree. Resources have been wasted by blowing bubbles.
Bubbles are a byproduct of bad policies.
We know how the U.S. has blown its dotcom bubble and real estate bubble and how they are paying the price.
Japan has undergone two lost decades after their stock market/real estate burst.
China is also facing a property bubble pop with credit growing at 20+% YOY.
Korea is not immune from this issue.
The bubble boom and bust has destroyed the productive capacity of a nation to a considerable degree. Resources have been wasted by blowing bubbles.
Bubbles are a byproduct of bad policies.
Friday, September 17, 2010
Asian Mercantilist Policy: Whom to Blame?
The so-called American economists like Paul Krugman bash the Asian mercantilist policy (See Krugman’s latest article on this issue http://www.nytimes.com/2010/09/13/opinion/13krugman.html?_r=3).
Intelligent minds wouldn’t argue against Krugman’s claim: “the consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus.”
And yet, China’s currency manipulation was not a problem 10 years ago, but suddenly became an imminent issue?
Could these policies China, Japan and Korea have employed have been possible without the U.S. policy letting this happen?
When and why did China start devaluing the yuan and then pegging it to the USD?
When did the Korean and Japanese production start to be moved to China and what was the reason for that?
So are the financialization of the American economy and its destroyed manufacturing base in large part attributable to the Asian trading partners’ mercantilist policy?
Give us a break.
Of course, we shouldn’t disregard the fact that some Asian countries have pursued their mercantilist policy at the expense of their own consumers for decades.
Intelligent minds wouldn’t argue against Krugman’s claim: “the consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus.”
And yet, China’s currency manipulation was not a problem 10 years ago, but suddenly became an imminent issue?
Could these policies China, Japan and Korea have employed have been possible without the U.S. policy letting this happen?
When and why did China start devaluing the yuan and then pegging it to the USD?
When did the Korean and Japanese production start to be moved to China and what was the reason for that?
So are the financialization of the American economy and its destroyed manufacturing base in large part attributable to the Asian trading partners’ mercantilist policy?
Give us a break.
Of course, we shouldn’t disregard the fact that some Asian countries have pursued their mercantilist policy at the expense of their own consumers for decades.
Thursday, September 16, 2010
China Pursuing New Business Models Due To Higher Wages and Other Low-Cost Countries May Be Seeing Wage Increase, But…
One has to understand this global wage arbitrage issue in the larger context of globalization and industrial development process of a nation (e.g., the nature of national competitiveness, MNCs making profits, and national policies including currency manipulation). Japan and Korea have gone through this process.
From the NYT:
Companies here in China’s industrial heartland are toiling to reinvent their businesses, fearing that the low-cost manufacturing that helped propel the nation’s economic ascent is fast becoming obsolete.
And after years of assembling vacuum cleaners and rechargeable toothbrushes for Philips and other Western companies, Kwonnie Electrical Products is planning its own line of home appliances.
“We want to do more original design and build our own brand,” Benjamin Kwok, a company founder, said during a recent tour of a sprawling factory complex that has 3,000 workers, a huge warehouse and labs for testing juice makers, vacuum cleaners and other appliances.
For years, factories here in the Pearl River Delta region have served as the low-cost workshops for global brands, turning this part of China into the nation’s biggest export zone. The city of Dongguan, about 35 miles northwest of Hong Kong, has long churned out toys, textiles, furniture and sports shoes — including hundreds of millions of sneakers a year for companies like Nike and Adidas.
But now, with manufacturing costs rising and China looking to create a consumer middle class, experts say the revamping of this region’s industries could help reduce the nation’s wide income gap and encourage more balanced and sustainable economic growth.
“It is my hope that China’s comparative advantage as a low-wage producer does disappear — the sooner the better,” Fan Gang, an economics professor at Peking University, wrote in a recent essay, adding that China needed to upgrade and embark on “the next stage of development.”
Manufacturing costs have risen rapidly here in response to nagging labor shortages and worker demands for higher wages to help offset soaring food and property prices.
Those pressures were evident a few months ago, when a series of big labor strikes in southern China disrupted several Japanese auto factories and resulted in hefty pay raises.
There is also the looming prospect that China’s currency, the renminbi, will strengthen against other world currencies in the coming years. That would make goods produced here even more expensive to export, and further erode what manufacturers say are already thin profit margins.
But longer term, district officials want to encourage innovation.
“Every company now wants to be a high-tech company, and we want to encourage them,” Mr. Zhu said, as he headed for an electronics factory, where he would inquire about profitability.
The national government has preferential tax policies to encourage technology companies, and the Qingxi district government has a research and development fund — officials decline to say how much money it has — to support efforts.
One company that has already received government money for research and development is a division of Lite-On Technology, the electronics supplier.
http://www.nytimes.com/2010/09/16/business/global/16factory.html
From the NYT:
Moeun Tola, a Cambodian labor advocate, blames Gap, Nike and other major Western brands for miring Cambodian workers in low wages. Inspired by labor disputes in China, he is pushing back.
Mr. Moeun Tola and thousands of Cambodian garment workers began a five-day walkout Monday to demand better wages and benefits, a sign that recent labor unrest in China may be spreading to factories elsewhere in Asia that supply the world with low-cost goods.
A wave of worker disputes in China in recent months, mostly at foreign-owned factories like Honda and Foxconn, has raised questions about whether other low-cost Asian manufacturing centers will also see higher wages as their workers become more assertive.
In Bangladesh, thousands of textile workers demanding an increase in wages to 5,000 taka, or $72, a month from 3,000 taka clashed with the police last month and at least 500 people were wounded. In Vietnam, thousands went on strike in April at a Taiwanese-owned shoe factory.
Peter Brimble, chief economist for Cambodia at the Asian Development Bank, worries that the strike is coming at a difficult time for an industry that shed almost 30,000 jobs in 2009 after a slump in sales to the United States and Europe.
Of Cambodia’s 13.4 million people, the textiles sector employs an estimated 300,000, who send cash back to impoverished villages.
“It’s not the right time,” Mr. Brimble said of the strike.
http://www.nytimes.com/2010/09/14/business/global/14garment.html
From the NYT:
Companies here in China’s industrial heartland are toiling to reinvent their businesses, fearing that the low-cost manufacturing that helped propel the nation’s economic ascent is fast becoming obsolete.
And after years of assembling vacuum cleaners and rechargeable toothbrushes for Philips and other Western companies, Kwonnie Electrical Products is planning its own line of home appliances.
“We want to do more original design and build our own brand,” Benjamin Kwok, a company founder, said during a recent tour of a sprawling factory complex that has 3,000 workers, a huge warehouse and labs for testing juice makers, vacuum cleaners and other appliances.
For years, factories here in the Pearl River Delta region have served as the low-cost workshops for global brands, turning this part of China into the nation’s biggest export zone. The city of Dongguan, about 35 miles northwest of Hong Kong, has long churned out toys, textiles, furniture and sports shoes — including hundreds of millions of sneakers a year for companies like Nike and Adidas.
But now, with manufacturing costs rising and China looking to create a consumer middle class, experts say the revamping of this region’s industries could help reduce the nation’s wide income gap and encourage more balanced and sustainable economic growth.
“It is my hope that China’s comparative advantage as a low-wage producer does disappear — the sooner the better,” Fan Gang, an economics professor at Peking University, wrote in a recent essay, adding that China needed to upgrade and embark on “the next stage of development.”
Manufacturing costs have risen rapidly here in response to nagging labor shortages and worker demands for higher wages to help offset soaring food and property prices.
Those pressures were evident a few months ago, when a series of big labor strikes in southern China disrupted several Japanese auto factories and resulted in hefty pay raises.
There is also the looming prospect that China’s currency, the renminbi, will strengthen against other world currencies in the coming years. That would make goods produced here even more expensive to export, and further erode what manufacturers say are already thin profit margins.
But longer term, district officials want to encourage innovation.
“Every company now wants to be a high-tech company, and we want to encourage them,” Mr. Zhu said, as he headed for an electronics factory, where he would inquire about profitability.
The national government has preferential tax policies to encourage technology companies, and the Qingxi district government has a research and development fund — officials decline to say how much money it has — to support efforts.
One company that has already received government money for research and development is a division of Lite-On Technology, the electronics supplier.
http://www.nytimes.com/2010/09/16/business/global/16factory.html
From the NYT:
Moeun Tola, a Cambodian labor advocate, blames Gap, Nike and other major Western brands for miring Cambodian workers in low wages. Inspired by labor disputes in China, he is pushing back.
Mr. Moeun Tola and thousands of Cambodian garment workers began a five-day walkout Monday to demand better wages and benefits, a sign that recent labor unrest in China may be spreading to factories elsewhere in Asia that supply the world with low-cost goods.
A wave of worker disputes in China in recent months, mostly at foreign-owned factories like Honda and Foxconn, has raised questions about whether other low-cost Asian manufacturing centers will also see higher wages as their workers become more assertive.
In Bangladesh, thousands of textile workers demanding an increase in wages to 5,000 taka, or $72, a month from 3,000 taka clashed with the police last month and at least 500 people were wounded. In Vietnam, thousands went on strike in April at a Taiwanese-owned shoe factory.
Peter Brimble, chief economist for Cambodia at the Asian Development Bank, worries that the strike is coming at a difficult time for an industry that shed almost 30,000 jobs in 2009 after a slump in sales to the United States and Europe.
Of Cambodia’s 13.4 million people, the textiles sector employs an estimated 300,000, who send cash back to impoverished villages.
“It’s not the right time,” Mr. Brimble said of the strike.
http://www.nytimes.com/2010/09/14/business/global/14garment.html
Wednesday, September 15, 2010
Chinese Think Tank Warns the U.S. over Trade War
From the Telegraph:
Ding Yifan, a policy guru at the Development Research Centre, said China could respond by selling holdings of US debt, estimated at over $1.5 trillion (£963bn). This would trigger a rise in US interest rates. His comments at a forum in Beijing follow a string of remarks by Chinese officials questioning US credit-worthiness and the reliability of the dollar.
http://www.telegraph.co.uk/finance/currency/8002719/Chinese-think-tank-warns-US-it-will-emerge-as-loser-in-trade-war.html
Ding Yifan, a policy guru at the Development Research Centre, said China could respond by selling holdings of US debt, estimated at over $1.5 trillion (£963bn). This would trigger a rise in US interest rates. His comments at a forum in Beijing follow a string of remarks by Chinese officials questioning US credit-worthiness and the reliability of the dollar.
http://www.telegraph.co.uk/finance/currency/8002719/Chinese-think-tank-warns-US-it-will-emerge-as-loser-in-trade-war.html
Tuesday, September 14, 2010
The Democratic System and Policy Errors
The U.S, the Eurozone, Japan, China, Korea, and other countries across the globe are in a mess. For some, sovereign default looms.
Again, policy matters.
If neither political party corrects policy errors, it wouldn’t seem to make any difference which party holds the levers of political power.
This seems to hold true for the U.S., Japan and Korea.
If the people continue to vote for whomever delays or promises to stop the pain without making genuine efforts to revamp the broken system, how we are going to see the real recovery?
If educating the masses is what it really takes to make any meaningful change, how we are going to do that?
Again, policy matters.
If neither political party corrects policy errors, it wouldn’t seem to make any difference which party holds the levers of political power.
This seems to hold true for the U.S., Japan and Korea.
If the people continue to vote for whomever delays or promises to stop the pain without making genuine efforts to revamp the broken system, how we are going to see the real recovery?
If educating the masses is what it really takes to make any meaningful change, how we are going to do that?
Monday, September 13, 2010
The Sign of Dwindling Exports
The Korea's media outlets scrambled to report that according to the Bank of Korea, Korea’s monthly export volume hit a record high in July, 28.8% up YOY.
And yet, the HSBC PMI suggests otherwise. The Korean August PMI is down to the 50 level.
It should be noted that Korea tends to report its statistics on a year over year basis, not on a sequential month to month basis.
Korea’s export contraction is what I have been concerned about all along amidst the global economic slowdown since Korea remains heavily dependent on exports.
And yet, the HSBC PMI suggests otherwise. The Korean August PMI is down to the 50 level.
It should be noted that Korea tends to report its statistics on a year over year basis, not on a sequential month to month basis.
Korea’s export contraction is what I have been concerned about all along amidst the global economic slowdown since Korea remains heavily dependent on exports.
Sunday, September 12, 2010
“Seek God’s favor, humbling yourself under his mighty hand, and he will raise you up in your time. Bring your concerns to him as you would a loving father. Be alert to danger, because temptation prowls like a roaring lion, looking for souls to devour. Resist weakness, standing firm with the faithful around the world. The God of creation has called you by name, and loves you as his own. After you have suffered a little while, he will heal your wounds, and take you home safe at last.”
1 Peter 5
1 Peter 5
Friday, September 10, 2010
Regarding China
We understand what has fuelled China’s exponential growth. Their trajectory is somewhat different from those of Japan and Korea while there are some similarities.
We know that China is the largest creditor nation and what they are doing with that money (e.g., buying up commodities and metals mines and dumping U.S. treasuries to buy $541 billion in Japanese bonds this year. China has also bought Korean bonds.). We also know how MNCs in China have been making profits.
China is making an impressive progress in building its manufacturing base (they are making high-end products as well), but they seem to be wasting their wealth producing mechanism by blowing property bubbles.
Why can’t China take a right lesson from the U.S., Japan and Korea?
Chinese version of capitalism seems to be working for the time being.
And yet, perhaps most importantly, China is a communist regime. We know the fate of communist states in world history.
China is the largest trading partner of Korea.
We know that China is the largest creditor nation and what they are doing with that money (e.g., buying up commodities and metals mines and dumping U.S. treasuries to buy $541 billion in Japanese bonds this year. China has also bought Korean bonds.). We also know how MNCs in China have been making profits.
China is making an impressive progress in building its manufacturing base (they are making high-end products as well), but they seem to be wasting their wealth producing mechanism by blowing property bubbles.
Why can’t China take a right lesson from the U.S., Japan and Korea?
Chinese version of capitalism seems to be working for the time being.
And yet, perhaps most importantly, China is a communist regime. We know the fate of communist states in world history.
China is the largest trading partner of Korea.
Moody’s Predicts Korea’s Housing Bubble Bust
According to Moody’s, Korea’s housing prices will continue to fall.
Korea had had a decade-long real estate market boom.
Korea had had a decade-long real estate market boom.
Thursday, September 9, 2010
Why China Keeps Buying Japanese Debt?
From Bloomberg:
Japan’s government said it will seek discussions with China over the nation’s record purchases of Japanese bonds as an appreciating yen threatens to undermine an economic recovery.
Japan is closely watching the transactions and will seek to maintain close contact with Chinese authorities on the issue, Vice Finance Minister Naoki Minezaki told lawmakers in Tokyo. Finance Minister Yoshihiko Noda suggested at the same hearing that it’s inappropriate for China to buy Japan’s bonds without a reciprocal ability for Japanese to invest in China’s market.
China, which possesses the world’s largest foreign-exchange reserves at $2.45 trillion in June, has sought to diversify its holdings after already becoming the largest overseas investor in U.S. Treasuries. Japan has the second-largest reserves total, at $1.01 trillion, and is the No. 2 foreign owner of U.S. debt.
At the same time, Premier Wen Jiabao’s government has begun to open up access to China’s own debt market. The PBOC said on Aug. 17 it would let overseas financial institutions invest in the nation’s bond market to promote greater use of the yuan in global trade and finance.
http://www.bloomberg.com/news/2010-09-09/japan-plans-to-seek-talks-with-china-on-bond-purchases-after-record-buying.html
Japan’s government said it will seek discussions with China over the nation’s record purchases of Japanese bonds as an appreciating yen threatens to undermine an economic recovery.
Japan is closely watching the transactions and will seek to maintain close contact with Chinese authorities on the issue, Vice Finance Minister Naoki Minezaki told lawmakers in Tokyo. Finance Minister Yoshihiko Noda suggested at the same hearing that it’s inappropriate for China to buy Japan’s bonds without a reciprocal ability for Japanese to invest in China’s market.
China, which possesses the world’s largest foreign-exchange reserves at $2.45 trillion in June, has sought to diversify its holdings after already becoming the largest overseas investor in U.S. Treasuries. Japan has the second-largest reserves total, at $1.01 trillion, and is the No. 2 foreign owner of U.S. debt.
At the same time, Premier Wen Jiabao’s government has begun to open up access to China’s own debt market. The PBOC said on Aug. 17 it would let overseas financial institutions invest in the nation’s bond market to promote greater use of the yuan in global trade and finance.
http://www.bloomberg.com/news/2010-09-09/japan-plans-to-seek-talks-with-china-on-bond-purchases-after-record-buying.html
Wednesday, September 8, 2010
Dissonance between Manufacturing and Financial Sectors
We are well aware that dissonance between Korea’s manufacturing and financial sectors was one of the major causes of the 1997 financial crisis.
We have seen how some countries have gutted its manufacturing sector primarily for the benefit of the banks.
Regardless of types of capitalism, there are close ties between the state and the banking system.
In the case of Japan, the mismanagement of the banking sector, the stock market/real estate bubbles and bad fiscal policies have fuelled its grave debt despite its solid manufacturing sector.
The U.S. financial system is interwoven into its federal government. We have seen the rise and fall of the U.S. manufacturing base. In the case of U.S., finance had 41% of the S&P 500’s profits.
China’s banks are a system of political patronage. The state owns the means of production as well.
Keeping the productive capacity intact and a balance between manufacturing and financial sectors is the wealth of a nation.
We have seen how some countries have gutted its manufacturing sector primarily for the benefit of the banks.
Regardless of types of capitalism, there are close ties between the state and the banking system.
In the case of Japan, the mismanagement of the banking sector, the stock market/real estate bubbles and bad fiscal policies have fuelled its grave debt despite its solid manufacturing sector.
The U.S. financial system is interwoven into its federal government. We have seen the rise and fall of the U.S. manufacturing base. In the case of U.S., finance had 41% of the S&P 500’s profits.
China’s banks are a system of political patronage. The state owns the means of production as well.
Keeping the productive capacity intact and a balance between manufacturing and financial sectors is the wealth of a nation.
Tuesday, September 7, 2010
According to the Alan Greenspan Definition, the U.S. Is a Crony Capitalist System
We understand what Alan Greenspan did in the past. Alan Greenspan is the one who kept the interest rates low, which led to the subprime boom. Again, policy matters.
From Zero Hedge:
In the following exchange from a DemocracyNow interview, Greenspan is forced to respond to his quote from Age Of Turbulence on the definition of crony capitalism: "When a government's leaders or businesses routinely seek out private sector individuals or business, and in exchange for political support bestow favors on them, the society is said to be in the grip of crony capitalism. The favors generally take the form of monopoly access to certain markets, preferred access to sales of government assets, and special access to those in power." Greenspan's pathetic excuse is that while crony capitalism is a "dominant force" in some other regimes, it is "not the dominant force in this country." Perhaps all those who are fighting with the virtual monopoly granted to certain players, such as Goldman in fixed income trading, and Pimco in government bonds, would beg to differ. So yes, according to the Greenspan definition America is now nothing more than a crony capitalist society…
http://www.zerohedge.com/article/alan-greenspan-admits-america-crony-capitalist-system
From Zero Hedge:
In the following exchange from a DemocracyNow interview, Greenspan is forced to respond to his quote from Age Of Turbulence on the definition of crony capitalism: "When a government's leaders or businesses routinely seek out private sector individuals or business, and in exchange for political support bestow favors on them, the society is said to be in the grip of crony capitalism. The favors generally take the form of monopoly access to certain markets, preferred access to sales of government assets, and special access to those in power." Greenspan's pathetic excuse is that while crony capitalism is a "dominant force" in some other regimes, it is "not the dominant force in this country." Perhaps all those who are fighting with the virtual monopoly granted to certain players, such as Goldman in fixed income trading, and Pimco in government bonds, would beg to differ. So yes, according to the Greenspan definition America is now nothing more than a crony capitalist society…
http://www.zerohedge.com/article/alan-greenspan-admits-america-crony-capitalist-system
Rebuilding Productive Capacity and Bringing Manufacturing Jobs Back
One of the great concerns facing Korea may be its secular manufacturing decline since the 1997 financial crisis. There are many causes for this trend. I have discussed as to how Korea can shore up its productive capacity on numerous occasions.
Technology trade deficit, global wage arbitrage, skewed industrial structure, struggling SMEs, industrial/technology/higher education policies are the examples of the structural problems.
Ironically, easy credit policy since the 1997 financial crisis has been exacerbating the decline of Korea’s manufacturing.
One has to take a hard look at what made Korea’s economic miracle possible and how it has seemingly bounced back from the 1997 financial crisis.
What made Korea’s rapid economic growth possible (e.g., massive government interventions and chaebol-centered industrial development) is now hurting her.
Technology trade deficit, global wage arbitrage, skewed industrial structure, struggling SMEs, industrial/technology/higher education policies are the examples of the structural problems.
Ironically, easy credit policy since the 1997 financial crisis has been exacerbating the decline of Korea’s manufacturing.
One has to take a hard look at what made Korea’s economic miracle possible and how it has seemingly bounced back from the 1997 financial crisis.
What made Korea’s rapid economic growth possible (e.g., massive government interventions and chaebol-centered industrial development) is now hurting her.
Monday, September 6, 2010
Roubini Sees a 40%+ Chance of a Double Dip
From Zero Hedge:
…the NYU professor does a quick 5 minute summary of what he sees as the main threats to the US economy, among which are a 40%+ chance of a double dip, a sub 1% GDP growth in H2 2010, the disappearance of all stimulus pushes (and the conversion of the fiscal stimulus from a tailwind to a headwind), an awful job market, bigger bank losses, declining home prices, a drop in the stock market, widening spreads, a feedback loop from stock markets into the economy, and much more. We are happy the professor has revised his call from a few months back seeing virtually no chance of a double dip.
http://www.zerohedge.com/article/dr-realist-fka-doom-talks-double-dip-ft
…the NYU professor does a quick 5 minute summary of what he sees as the main threats to the US economy, among which are a 40%+ chance of a double dip, a sub 1% GDP growth in H2 2010, the disappearance of all stimulus pushes (and the conversion of the fiscal stimulus from a tailwind to a headwind), an awful job market, bigger bank losses, declining home prices, a drop in the stock market, widening spreads, a feedback loop from stock markets into the economy, and much more. We are happy the professor has revised his call from a few months back seeing virtually no chance of a double dip.
http://www.zerohedge.com/article/dr-realist-fka-doom-talks-double-dip-ft
Sunday, September 5, 2010
Friday, September 3, 2010
Having Faith in Human Progress and the People
I read a comment by a guy in his early 20s on a financial blog, lamenting “My smartest peers can’t/won’t understand any of this until it is too late.”
We get that feeling now and then since we live in an environment where the masses believe what is fed via the mainstream media. Can the masses ever wake up to reality?
Yet, perhaps when things get to a certain boiling point, the people would understand the severity of the state of the world and choose a path to rebuild the system. Little by little, there is progress.
We get that feeling now and then since we live in an environment where the masses believe what is fed via the mainstream media. Can the masses ever wake up to reality?
Yet, perhaps when things get to a certain boiling point, the people would understand the severity of the state of the world and choose a path to rebuild the system. Little by little, there is progress.
Thursday, September 2, 2010
Cycles of Globalization and Manufacturing
We live in a tangled web thanks to globalization.
Korea’s economic growth in the early days of industrialization has come as a byproduct of globalization to any significant degree, taking advantage of its diligent cheap labor. Since the 1997 financial crisis, its manufacturing base has been weakening.
The U.S has shipped much of its manufacturing overseas while financial services have risen as America’s chief product. The credit boom has created false demand in the U.S.
Production on real goods had been shifted to Asian tigers, and then some is being shifted to South Asian countries.
As the domestic economies of the off-shore countries grow, their middle class populations will grow and demand for products will grow along with them.
Global wage arbitrage has been driving the transfer of manufacturing from the developed nations to developing ones. MNCs relentlessly relocate production off-shore. Some (like Marc Faber and Andy Xie) have argued that low interest rates in the U.S. have pushed the money to go to the developing nations. We understand how the credit boom and bust in the U.S. has been.
It is contended that the world economy can’t bottom until the rest of the world goes through the similar process
To make matters worse, the world economy is facing the deflationary forces the world hasn’t seen for some time.
Korea’s economic growth in the early days of industrialization has come as a byproduct of globalization to any significant degree, taking advantage of its diligent cheap labor. Since the 1997 financial crisis, its manufacturing base has been weakening.
The U.S has shipped much of its manufacturing overseas while financial services have risen as America’s chief product. The credit boom has created false demand in the U.S.
Production on real goods had been shifted to Asian tigers, and then some is being shifted to South Asian countries.
As the domestic economies of the off-shore countries grow, their middle class populations will grow and demand for products will grow along with them.
Global wage arbitrage has been driving the transfer of manufacturing from the developed nations to developing ones. MNCs relentlessly relocate production off-shore. Some (like Marc Faber and Andy Xie) have argued that low interest rates in the U.S. have pushed the money to go to the developing nations. We understand how the credit boom and bust in the U.S. has been.
It is contended that the world economy can’t bottom until the rest of the world goes through the similar process
To make matters worse, the world economy is facing the deflationary forces the world hasn’t seen for some time.
Wednesday, September 1, 2010
What Would Happen When Exports Dwindle?
China’s exponential growth has been fuelled by its exports.
Despite massive debts, Japan has kept strong trade surpluses to backstop its domestic debt.
Korea has seemingly recovered from the 1997 financial crisis due to its strong export machine.
The reality is that the U.S. economy which has been a prime market for the world’s exports is weakening. Asian export countries have been shifting their exports to European and emerging markets. Yet the economy of the Europe is also in a deflationary spiral. Emerging markets haven’t substantially grown their purchasing power yet.
Where would export-driven economies go? Boosting domestic consumption doesn’t seem to be a viable option for the foreseeable future.
One thing seems to be clear: rising buying power based not on savings and rising income would be detrimental to any economy.
Despite massive debts, Japan has kept strong trade surpluses to backstop its domestic debt.
Korea has seemingly recovered from the 1997 financial crisis due to its strong export machine.
The reality is that the U.S. economy which has been a prime market for the world’s exports is weakening. Asian export countries have been shifting their exports to European and emerging markets. Yet the economy of the Europe is also in a deflationary spiral. Emerging markets haven’t substantially grown their purchasing power yet.
Where would export-driven economies go? Boosting domestic consumption doesn’t seem to be a viable option for the foreseeable future.
One thing seems to be clear: rising buying power based not on savings and rising income would be detrimental to any economy.
The IMF Sees G7 Net Debt at 200% of GDP by 2030
From Zero Hedge:
The IMF has issued a series of papers today whose sole purpose is to assuage fears that the world is headed for a sovereign default driven inferno, authored by Carlo Cottarelli and two other staffers, which concludes that markets currently "significantly overestimate" the risk of sovereign debt default in the advanced economies. The idea for the papers, according to Cottarelli, was born out of a "sense of frustration" after talking to two financial market analysts in Europe who had "no focus on numbers, but more a feeling, a sensation things are going bad and would continue to go bad." Well, actually the numbers are there, and as the IMF itself concludes G7, debt to GDP for the G7 countries which is currently 77%, will reach 200% by 2030 and 441% by 2050. But since the IMF paper is only focusing on a few months into the future, it may very well be right. In the meantime, we will stick with Morgan Stanley's recent analysis on the topic by Arnaud Mares, which concluded that sovereign defaults will happen, and likely in dramatic numbers, the only question is how.
http://www.zerohedge.com/article/imf-sees-g7-net-debt-200-gdp-2030-441-2050
The IMF has issued a series of papers today whose sole purpose is to assuage fears that the world is headed for a sovereign default driven inferno, authored by Carlo Cottarelli and two other staffers, which concludes that markets currently "significantly overestimate" the risk of sovereign debt default in the advanced economies. The idea for the papers, according to Cottarelli, was born out of a "sense of frustration" after talking to two financial market analysts in Europe who had "no focus on numbers, but more a feeling, a sensation things are going bad and would continue to go bad." Well, actually the numbers are there, and as the IMF itself concludes G7, debt to GDP for the G7 countries which is currently 77%, will reach 200% by 2030 and 441% by 2050. But since the IMF paper is only focusing on a few months into the future, it may very well be right. In the meantime, we will stick with Morgan Stanley's recent analysis on the topic by Arnaud Mares, which concluded that sovereign defaults will happen, and likely in dramatic numbers, the only question is how.
http://www.zerohedge.com/article/imf-sees-g7-net-debt-200-gdp-2030-441-2050
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